CUNA, CMG: Expect double-digit loan growth in '15, '16

MADISON, Wis. (7/1/15)--After meeting last week, CUNA and CUNA Mutual economists jointly predict loan growth of 11% in 2015 for the U.S. economy, higher than the 10.4% increase in 2014.

The baseline forecast for 2016 is 10% loan growth, CUNA and CUNA Mutual Group economists said.

“With continued economic expansion, we expect to see further improvement in credit quality,” Perc Pineda, CUNA senior economist, told News Now. “The delinquency rate in the first quarter came in lower than our previous forecast. We now expect the delinquency rate to finish 2015 at 0.7% and to finish 2016 at 0.65%. We kept our outlook for net charge-off rates unchanged at 0.45% in both 2015 and 2016.”

While the federal funds rate hike this year may have a significant “announcement effect,” market participants have been strategizing their response to a rate hike for some time, Pineda noted. Any market disruptions are expected to be minimal and temporary. CUNA and CUNA Mutual Group economists now expect the fed funds rate to be at 0.5% by the end of 2015 and at 1.75% by the end of 2016.

“This will affect credit union earnings--interest margin pressures will become more obvious in 2016 and mortgage refinancing will decline--and we expect the return on average assets to decline slightly from 0.8% in 2014 to 0.75% this year, then dipping a bit more to 0.7% in 2015,” Pineda said.

Despite uneven first quarter data, particularly a 0.2% decline in gross domestic product, the underpinnings of the U.S. economy are solid, CUNA and CUNA Mutual Group economists said. The first quarter reflected some transitory weakness, and while the economists' forecast for the second quarter GDP growth is revised down modestly to 3%, they kept their third and fourth quarter forecast at 3%.

“Overall, we expect the U.S. economy will grow 2.2% this year and 3.25% next year,” Pineda said. “Positives include improved consumer confidence, a related uptick in personal consumption expenditures and favorable gas prices. Pressures in the prior months, such as a strong U.S. dollar that weighed on manufacturing and exports, are easing and should support continued economic expansion. Developments in Greece are a key concern.”

The labor market, while not completely recovered, is reflecting broad improvement, economists said. They expect the unemployment rate to continue to drop to 5.2% and 4.9% in 2015 and 2016 respectively. Prices, although currently on the low side, have been stable.

While the group’s 2015 forecast for core inflation is unchanged at 1.75%, its expects headline inflation to rise to 1.5% in 2015. “Our baseline forecast for both headline and core inflation in 2016 is 1.75% as energy price increases work their way through the system,” Pineda said. “Oil prices are still below historic highs, which should help to keep inflation below the Federal Reserve’s 2% target this year and the next.”

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